May 5, 2006

OPINION

FREE OUR CURRENCY

The SPPF government has through its “unofficial” propaganda machine “Isola Bella” of 5 May 2006, decided to make an attempt to convince the Seychellois public of the so called “negative consequences” of a “convertibility of the rupee”, following a series of pointed articles appearing in the Seychelles Weekly.

Interestingly enough it has selected as its “economic expert” Mr. Ronald Cafrine, a graduate who returned a few years ago from his basic degree studies abroad. How his limited “economic experience”, has given him this incredibly marvelous insight is beyond rational thinking.

That said, the article in Isola bella is nothing more than a series of misstatements, untruths and a limited understanding of economics and the forces of supply and demand, which determine the relative value of a currency vis-à-vis other currencies.

DELIBERATE POLICY OF CREATING CONFUSION

he article begins by suggesting that “Seychellois breathe a sigh of relief and applause at meetings” when the SPPF insist that they will “not devalue the rupee”. The fact of the matter is that Seychellois have been inundated with lies and half truths as to the consequences (especially the long term) of the devaluation of the currency.  The truth is that SPPF has deliberately created confusion in the minds of the public as to what constitutes devaluation and what constitutes convertibility.

They have used the words synonymously as though there were in effect the same thing. To date there has never been any political party that has called for the outright “devaluation” of the Seychelles currency, without insisting on complimentary social support measures. This type of government driven, unilateral decision, to devalue the currency will have immediate and serious consequences and it may not reflect the real worth of the currency in international trading markets. The Isola Bella article suggests that the “phrase convertibility of the rupee, is to the ordinary men and women shrouded in mystery”. If there is a sense of the “mysterious” on this issue, it is in fact, the SPPF propaganda machine that has led to this point. If Seychellois were simply told the truth, there would be a hue and cry for a “convertibility of our currency”.

The convertibility of the currency is no big secret outside Seychelles. Almost every country in the world, with the exception of a few dictator states has a convertible currency. Every Seychellois would most welcome the opportunity to be able to go to any of the Banks and obtain the amount of foreign currency he or she desires. This currency will be sold to them at the prevailing market rates, in the way it is done almost everywhere one travels. If a “good section of the population is scared” of a convertible currency, as the article infers” the SPPF should be ashamed for distorting the people’s understanding on this issue.

One of the reasons given for the SPPF government’s decision not to allow people to “freely” buy foreign exchange, as they need it is the suggestion that “it will erode all of the social achievements gained over the past 30 years” according to James Michel. The fact of the matter is that Seychellois will not lose their homes if the currency is made convertible. They are buying goods at highly inflated levels at the moment, because traders are forced to use the black market to obtain currency because of the restrictions and exchange controls placed on currency by the government.

The SPPF government should inform the people just how much of the acknowledged 4(Four) Billion rupees that it receives in foreign exchange, through the Central Bank is diverted to the local banks to enable traders and the general public to obtain a measly US$400, when they travel. How many unfortunate Seychellois have found themselves in severe difficulty because the US$400 was not enough to meet their minimum needs when they traveled overseas? How many parents have found themselves in a position of having to beg and borrow or haunt the black market traders to get a little foreign exchange to support their children in difficulties overseas during their studies? How many Seychellois suffering illnesses and needing overseas treatment have had to by pass the ineffective government health system and seek foreign exchange through friends, family and the black market?

SPPF INDIFFERENT TO CONSEQUENCES OF DEBT

The fact of the matter is that the SPPF government will be the real loser in this exercise. It has borrowed unwisely, widely and with total disregard to the consequences and its ability to repay its debts. Seychelles is widely acknowledged as the country with the highest per capita (per head of population), debt in the world (200 percent). A few long outstanding debts have been rescheduled but they will still need to be repaid.

In the meantime the SPPF government continues to rack up even more debts with external banks, foreign governments like India, UAE, Kuwait and South Africa to name a few. Seychelles has lost its voice in many international organizations simply because the SPPF government has been unable to meet its financial obligations to these organizations, including the United Nations.

Interestingly enough, the Isola Bella article highlights the fact that the “International Monetary Fund (IMF) and the World Bank (IBRD), have commented on the devaluation”. It fails however, to clarify exactly what the two institutions have advised the SPPF government to do over many years (at least the last ten). Instead it tries, by a deceitful implication, to try and suggest that the IMF and the World Bank supports its position on the issues of either devaluation or the much less severe convertibility of the currency.

This reality is indeed not borne out by its later statements that “the World Bank, in a model on devaluation, put the value of the rupee at over SR8 to a dollar” which in layman’s words means it needs some “adjustment” downwards, effectively a devaluation.  If the SPPF government has any “balls” (excuse the French), it should publicly release the official reports of the two institutions. Instead of following the respectable advice of these two great institutions, the SPPF “experts” have chosen their own way, the “SPPF way”.

The SPPF “expert” suggests that “the reality is now that demand for forex caused by large amounts of rupees in circulation does not match inflows”. What the so called “expert” fails to acknowledge is that the introduction of the SPPF’s high flying Macro-Economic Reform Program (MERP), was exactly intended, when it was introduced a few years ago, to mop up the excess liquidity (by removing the amount of rupees being held by the people) through the imposition of the Gods and Services Tax (GST) and according to James Michel’s latest statements during his State of the Nation address, the MERP had been hugely “successful” in mopping up the “excess liquidity”.

In fact, it was so successful, that James Michel felt that so much had been collected from the Seychellois population through GST price increases that he was now in a position to “partage la richesse” with the population at large. In effect he had taken the politically inspired “cowards way” fearing an election backlash, to release return a significant proportion of the revenue collected through GST and other tax measures to the population by increasing salaries, pensions, lowering rental costs and reducing housing payments. All very nice moves except that, in effect, they caused an increase in “money supply” and thereby an increase in demand for foreign exchange. This turnaround placed everyone back to square one where once again an SPPF government “expert” can claim that the economy suffers from the “negative effects of a large concentration of rupees in circulation”, as the basis for his argument against giving Seychellois a convertible currency.  This unhappy situation has led to a stagnant economy, demonstrating negative growth for more than 5 years; prior to that the economy was in recession for a further five years.

THE FOREIGN EXCHANGE CRISIS

The Foreign exchange crisis, formed by the SPPF swallowing up the largest share of the available, foreign exchange, has been evident for at least fifteen years. How many times did we see James Michel, as Minister for Finance, over the years, tell us all that the foreign exchange crisis would abate and soon we would be able to obtain as much foreign exchange as we need from the banks. The former president, Albert Rene, in his many State-of-the-Nation addresses said much of the same. Must we continue to wait and have patience (according to the “expert Caffrine”)? How long must we suffer the consequences of this economic misadventure?

The article in Isola Bella quotes Francis Chang Leng, as suggesting that “devaluation would cause losses in tourism earnings”. Again it shifts the focus away from the issue of a convertible currency to a question of devaluation. In reality, a devaluation or a convertible currency (preferred option), would provide a significant increase in tourism figures.

The major factor affecting a tourist when making his decision as to where he will spend his holidays (according to global tourism surveys), is the “price factor”. Seychelles is an overpriced destination. The lack of convertibility of the currency is the major causal factor. The greater the number of rupees a tourist can buy for his dollars, the cheaper in real terms is his holiday.

The cheaper the costs of holiday packages, the greater number of tourist will select Seychelles as a preferred destination. We have the natural attractions, but these are outweighed by the high costs of travel, accommodation, goods and hire car services in Seychelles.

Tourism is a highly competitive industry, where even a somewhat small price difference will have major impact on travel decisions.

An open, public debate, on the issue of a “freely convertible” currency, will be a refreshing opportunity to clear up the “confusion” that Isola Bella finds in the minds of the many Seychellois suffering the negative consequences of the SPPF exchange control measures.  This will no doubt provide the SPPF government with an invitation to publicly, release the IMF Reports on Seychelles economy, to inform Seychellois of the many debt obligations which are not being met, to inform the public of the new debt burdens where it is mortgaging our children’s future and inform the Seychellois community in a frank an open way as to why we are (all includes those at the top), forced to buy foreign exchange illegally on the black market..

(Contributed)